Lower tariffs raise Korean investment

Since its establishment early this month, the Vietnam- South Korea FTA Support Centre in Hanoi has already helped several South Korean firms set up businesses here to benefit from the Vietnam-South Korea Free Trade Agreement’s (VKFTA) import tariff cuts.

“South Korean firms are coming to Vietnam in great numbers, and are interested in various projects here using materials imported from South Korea,” said Choi Dae Kyu, a tax specialist from the centre.

Park Juno, marketing director of home appliance maker Happy Cook, said that the VKFTA would enable this firm to import more goods from South Korea into Vietnam at much cheaper prices.

For instance, the import tariff of electric cookers would be 0 per cent over the next eight years, instead of 16 per cent as it is now.

In another case, Cuckoo Electronics, which is one of South Korea’s leading businesses in home appliances, began preparations for seizing the VKFTA opportunities by opening its first store in Ho Chi Minh City in July 2014. The firm opened a second store in Hanoi later that year, and had plans to open more outlets nationwide to import more goods from South Korea into Vietnam.

Vu Ba Phu, director of the Ministry of Industry and Trade’s Planning Department, said that since early this year, the number of South Korean firms entering Vietnam rose 18 per cent year-on-year.

Under the VKFTA, officially signed in May 2015 and taking effect last December, Vietnam pledged to reduce import duties by 92.4 per cent for many South Korean products such as textiles, garments, plastic materials, electronic spare parts, and vehicle components (see table for example). Crucially, this import duty reduction will be carried out over a 15-year period.

“Many South Korean firms have and will continue investing in Vietnam, in many sectors covered in this VKFTA,” Hong Sun, general secretary of the Korea Chamber of Business in Vietnam, told VIR. “It is also because Vietnam’s production and labour costs are lower than in other nations. Vietnam’s workers are also skillful.”

Early this month, the Mekong Delta city of Can Tho Export Processing and Industrial Zones Management Authority licensed South Korea’s Tae Kwang Industrial for a $172 million project at the city’s Hung Phu 2B industrial park. This 62-hectare, 50-year-long project will develop the park’s infrastructure works and build a factory to produce sports shoes. This project will begin the first-stage construction during 2016-2019, with operations starting next year.

Also early this month, the southern province of Binh Duong People’s Committee licensed South Korea’s Lumens Vina for a $30 million project to manufacture light-emitting diode lamp bulbs.

However, Kyu said that in order to benefit from the VKFTA, enterprises from both sides would have to meet strict requirements on product origins, meaning products exported to Vietnam must have materials made in South Korea, and vice versa.